FINANCIAL DUE DILIGENCE IN MERGERS AND ACQUISITIONS TRANSACTIONS
Abstract
Honcharenko O.E. FINANCIAL DUE DILIGENCE IN MERGERS AND ACQUISITIONS TRANSACTIONS
Purpose. The purpose of the article is to distinguish between existing approaches to differentiating the concepts of financial due diligence and auditing; improving methodological approaches to company analysis within the pre-investment stage based on systematizing possible adjustments to financial indicators.
Methodology of research. To achieve the goal of the research, the following research methods were used: theoretical synthesis, analysis; interpretations and comparisons – to determine the impact of adjustments on indicators; tabular – for a visual representation of the results of adjustments.
Findings. Key characteristics distinguishing the concepts of financial due diligence and auditing have been highlighted, with a focus on the concept of materiality. Systematized and provided examples of possible adjustments to financial indicators during financial due diligence in the pre-investment stage of merger and acquisition deals. Calculated adjusted indicators for a Ukrainian agricultural company based on publicly available information.
Originality. Methodological approaches to business analysis in the pre-investment stage of the merger and acquisition process have been further developed, particularly in terms of systematizing potential adjustments to financial indicators within financial due diligence. The results of previous research have been systematized, and the list of characteristics suitable for analyzing the concepts of financial due diligence and auditing has been expanded, with a specific focus on the concept of materiality.
Practical value. The proposed research findings contribute valuable insights to existing scientific works regarding the definition of financial due diligence and auditing, particularly in terms of their differentiation, as well as key aspects to consider in the financial analysis of potential investment targets at the pre-investment stage of the merger and acquisition process. The results of the study can be utilized to enhance transaction efficiency by improving analytical approaches and deepening the understanding of the merger and acquisition process among participants.
Key words: merger and acquisition, financial due diligence, information asymmetry.
Keywords
Full Text:
References
Sherman, A.J. and Hart, M.E. (2006), Mergers & acquisition: From A to Z, 2nd ed., AMACOM Div American Management Association, USA, 147 p.
Ghaughan, P. (2011), Mergers, acquisitions, and corporate restructurings, 3rd ed., John Wiley and Sons – University Edition, USA, 592 p.
Datta, D.K., Pinches, G.E. and Narayanan, V.K. (1992), “Factors influencing wealth creation from mergers and acquisitions: A meta-analysis”, Strategic Management Journal, no. 13, pp. 67-84.
King, D.R., Dalton, D.R., Daily, C.M. and Covin, J.G. (2004), “Meta-analyses of post-acquisition performance: Indications of unidentified moderators”, Strategic Management Journal, no. 25, pp. 187-200.
Moeller, S.B., Schlingemann, F.P. and Stulz, R.M. (2005), “Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave”, Journal of Finance, no. 60(2), pp. 757-782.
Data – Orbis M&A. (n.d.), available at: https://login.bvdinfo.com/R1/OrbisMA/ (access date December 20, 2023).
Rosenzweig, P.M., Haspeslagh, P.C. and Jemison, D.B. (1993), “Managing Acquisitions: Creating Value through Corporate Renewal”, The Academy of Management Review, Vol. 18, no. 2, pp. 370, available at: https://doi.org/10.2307/258765 (access date February 10, 2024).
Welch, X. et al. (2019), “The Pre-Deal Phase of Mergers and Acquisitions: A Review and Research Agenda”, Journal of Management, Vol. 46, no. 6, pp. 843-878, available at: https://doi.org/10.1177/0149206319886908 (access date 10.02. 2024).
Harvey, M.G. and Lusch, R.F. (1995), “Expanding the nature and scope of due diligence”, Journal of Business Venturing, Vol. 10, no. 1, pp. 5-21, available at: https://doi.org/10.1016/0883-9026(94)00020-u (access date March 12, 2024).
Povel, P. and Singh, R. (2004), “Takeover contests with asymmetric bidders”, SSRN, available at: https://doi.org/10.2139/ssrn.565922 (access date March 12, 2024).
Bing, G. (2007), Due Diligence: Planning, Questions, Issues, available at: https://www.amazon.com/Due-Diligence-Planning-Questions-Issues/dp/0313345406 (access date March 12, 2024).
Vochozka, M., Máška, J. and Kovač, V. (2023), “Role of due diligence in business takeover”, Ekonomia i Prawo, Vol. 22, no. 3, pp. 635-654, available at: https://doi.org/10.12775/eip.2023.034 (access date March 14, 2024).
Tomashevska, I.L. (2014), “Due diligence: Conducting and documenting procedures”, Visnyk ZhDTU, no. 4, pp. 194-196.
Yermolenko, O. (2010), “Features of Vendor Due Diligence for Agricultural Enterprises”, Finansovyi dyrektor, no. 7/8, available at: http://gaap.ru/articles/81293/ (access date March 13, 2024).
Nazarenko, I.M. and Orekhova, A.I. (2011), “"Due diligence": Essence, purpose, and sequence of conduct”, Naukovi pratsi Kirovohradskoho natsionalnoho tekhnichnoho universytetu. Ekonomichni nauky: zb. nauk. pr., Iss. 20(1), Part 1, KNTU, Kirovohrad, Ukraine, pp. 360-366.
Karmazina, N.V. (2020), “Adaptive mechanism of the due diligence procedure for finding risks in acquisition of business in the regions of Ukraine”, Ekonomika ta derzhava, no. 5, p. 37-41, available at: https://doi.org/10.32702/2306-6806.2020.5.37 (access date February 08, 2024).
Kasych, A. and Yakovenko, Ya.Yu. (2015), “Due diligence as a key tool for investment feasibility analysis”, Oblik ta finansy, no. 4(70), pp. 92-27.
Schmitz, W.F. (2002), From Negotiation to Antitrust Clearence: National and International Mergers in the Third Millennium, Kluwer Law International, USA, pp. 234.
Angwin, D. (2001), “Mergers and Acquisitions across European Borders: National Perspectives on Pre-acquisition Due Diligence and the Use of Professional Advisors”, Journal of World Business, no. 36(1), pp. 32-57.
Bondar, V.P. and Pavlov, V.V. (2017), “Financial Due Diligence: Essence, Specifics, and Application Procedure”, Ekonomika. Finansy. Pravo, no. 4, pp. 26-30.
Novikov, O., Dubinina, M. and Kuzoma, V. (2018), “Due diligence: Essence and possible prospects of development”, Baltic Journal of Economic Studies, Vol. 4, no. 2, pp. 141-146, available at: https://doi.org/10.30525/2256-0742/2018-4-2-141-146 (access date February 08, 2024).
“Astarta Holding : official site”, available at: https://astartaholding.com/ (access date March 13, 2024).
Refbacks
- There are currently no refbacks.
INNOVATIVE ECONOMY 2006 - 2024